Audio Book Club Consolidates Competitors

The Audio Book Club Inc., Boca Raton, FL, is set to buy rival Audiobooks Direct, part of German publisher Bertelsmann's Doubleday Direct subsidiary, in a move that will consolidate the U.S. market for audio books sold via direct mail and the Internet.

With 2 million members and 70,000 titles in stock, the acquisition later this month will make the marketer the clear leader in its niche. At the same time, it signals Bertelsmann's retreat from the audio book club business.

"We believe that we have consolidated our competitors and have the entire audio book club market in our hands," said John F. Levy, executive vice president and chief financial officer of the Audio Book Club, from his office in Morristown, NJ. He declined to put a number to the deal's financial aspects.

This development comes four months on the heels of the Audio Book Club's purchase of the Columbia House Book Club, with a 625,000-strong membership. Columbia House was paid $30.7 million in cash, 325,000 shares of the company's common stock and a warrant for another 100,000 shares.

For Bertelsmann, the divestiture of Audiobooks Direct is part of a refocusing effort. The Guetersloh, Germany, marketer is the world's third largest media and publishing conglomerate through ownership of the Gruner + Jahr magazine group, leading consumer book publisher Random House, record labels like BMG and assorted European and Asian print and broadcast interests.

"We are developing a lot of new clubs right now, and audio book clubs do not fit in our focus," said Markus Wilhelm, president/CEO of Doubleday Direct, Garden City, NY. "We have to focus more on paper-based clubs that are more niche and develop our Internet activities."

Doubleday Direct is North America's leading direct marketing consumer book club group with more than 30 clubs in its fold. Its file of 5.5 million active members is drawn from such clubs as the Doubleday Book Club, the Literary Guild, the Mystery Guild, Stage and Screen, Crossings, and the Science Fiction Book Club. Wilhelm said Bertelsmann did not release revenue or profit figures as it was privately held.

"The challenge now all direct marketers face is that we have to make the transition to e-commerce, and we have to make it while we're still doing well," Wilhelm said.

Terms of the deal include an Internet marketing alliance for a co-branded yet unnamed Web site that pushes Audio Book Club and Doubleday products. In support will be mutual cross promotions via animated links and banners on the www.audiobookclub.com site and Doubleday's www.booksonline.com service.

The Audio Book Club also will be given the sole right to insert new member acquisition and member solicitation packages in all direct mailings of Doubleday Direct's consumer book clubs and sibling Doubleday Select's professional book clubs. In addition, the Audio Book Club will be Doubleday's exclusive recommendation for audio books.

With the inclusion of Audiobooks Direct's 450,000 active and inactive names, the Audio Book Club's file will swell to nearly 2 million members. The consolidated figure includes 400,000 members from the acquisition of three businesses dealing with classic and nostalgic radio and video programs.

In balance, however, is the fate of www.BooksAloud.com, the Audio Book Club's online sibling. Levy said the company was "reviewing the future of BooksAloud.com, though we feel it has a great future."

"One of the great things about [the Audiobooks Direct] acquisition as well as Columbia House is that we are able to triple our revenues without having to add any staff to our overhead [expenses]," he added. "The opportunity to be such a large player will let us lower our costs, increase volume, have more resources to devote to serve our members better, and basically allow us to operate much more profitably."

"If the Audio Book Club pursues the market as aggressively as it has, I hope it'll increase the consumer base, but that remains to be seen," said Jessica Kaye, president of the Audio Publishers Association, Manhattan Beach, California. "We see the market growing tremendously. Preliminary data for 1998 shows market penetration in excess of 25 percent. In 1995 it was 12 percent."

The association estimates the total U.S. market for audio books at $2 billion, a figure that is growing each year as more publishers release audio books in tandem with traditional printed books.

Founded in 1994, the Audio Book Club is still mired in losses. Gross sales last year were $22.2 million, up 47 percent from 1997. But losses for 1998 soared to $7 million, from $4.9 million in 1997.

Spreading the red ink was a fiscal 1998 allocation of about $7.5 million for new member recruitment and name branding through direct mail and the Internet, including alliances with such web marketers as Yahoo, America Online, Broadcast.com, Lycos and Microsoft Corp. The club, however, said it sold more than a million audio books in 1998.